Publication: Eurasia Daily Monitor Volume: 2 Issue: 200

As protests mount, members of the Kazakh government are finding it harder and harder to hide their bitter disappointment over the backdoor-deal between the Canadian-listed PetroKazakhstan and the China National Petroleum Corporation (CNPC).

For the last few weeks Prime Minister Daniyal Akhmetov and Minister of Energy and Mineral Resources Vladimir Shkolnik have reiterated that Kazakhstan should get its share in PetroKazakhstan and — above all — in the Shymkent oil refinery. Losing the refinery would be tantamount to depriving all southern Kazakhstan of a vital fuel line. Now youth groups, Afghan war veterans, and farmers have staged protest rallies at the Shymkent refinery’s headquarters, demanding that the “criminal mafia” and “foreigners” return the refinery.

The protests were reportedly provoked by Nefteprodukty, a partner company of PetroKazakhstan Oil Products that drastically reduced fuel supplies, leaving dozens of filling stations in and around Shymkent without gasoline. Within a week fuel prices soared by 30%. That price hike triggered higher bus fares and other transportation costs. Parliament summoned Shkolnik to face sharp criticism for allowing PetroKazakhstan to plunder the state’s oil resources. Parliament member Mukhtar Tinikeyev demanded Shkolnik’s resignation, and rumors swirl that Shkolnik will soon leave his post due to the fuel crisis (Karavan, October 14).

The government belatedly took action, devising controversial amendments to the oil law. Parliament approved the changes in great haste and President Nursultan Nazarbayev signed them on October 16, two days before PetroKazakhstan’s shareholders were scheduled to vote on the deal with CNPC. The amendments give Kazakhstan pre-emption rights in sales of foreign-held stakes and make it easier for the government to intervene in such deals.

The updated law not only helps the government diffuse the rising public anger over Chinese oil companies penetrating deeper into Kazakhstan, but also puts a stranglehold on all foreign companies operating in the country. Immediately after the protest rallies in Shymkent, the government imposed restrictions on exports of gasoline and diesel oil from Kazakhstan.

However, many experts doubt the workability of the new regulations. Fuel in large amounts can be — and has been — easily smuggled out of the country to crisis-stricken Uzbekistan. After the imposition of the ban on oil-product exports, Kyrgyz Prime Minister Felix Kulov and Kazakh Prime Minister Akhmetov reached an agreement to supply 15,000 tons of black oil to Kyrgyzstan. Tied by previously concluded agreements on economic assistance, Kazakhstan cannot leave Kyrgyzstan in the lurch. Apart from that, it will be difficult to observe the ban on gasoline and diesel oil exports under the October 15 agreement to jointly manage the Shymkent refinery with the Chinese on parity basis. Given all these outside factors, it is hard to predict a long-term price reduction in Kazakhstan’s oil markets (Panorama, October 21).

For all the imperfections of the legal tools used to exert pressure on PetroKazakhstan and CNPC, the Kazakh national oil company KazMunayGaz succeeded in squeezing, according to unofficial sources, 33% shares for $1.4 billion out of the Chinese. The government had counted on 50% of the shares in PetroKazakhstan. A more important achievement for Kazakhstan appears to be the agreement on setting up a joint venture to operate the Shymkent oil refinery, which is considered vital for the stability of domestic fuel markets. Successfully gaining partial control of the Shymkent refinery encourages the government to take further steps to enhance state control over the oil business. Currently only one of the three oil refineries, located in Atyrau, is fully managed by the state.

Willingly or unwillingly, Russia’s Lukoil Overseas company, currently in litigation with its Canadian partner for a 50% chunk of Turgay Petroleum, rendered valuable assistance to KazMunayGaz by acquiring the shares of PetroKazakhstan. With a remarkable swiftness, Lukoil Overseas purchased 65% of the shares in Nelson Resources shortly before Nazarbayev signed the amendments to the law. The acquisition of Nelson Resources grants Lukoil the right to participate in the development of South Zhambay and South Zaburunye fields in the Kazakh sector of the Caspian Sea (Megapolis, October 21).

In this intricate game it is difficult to tell the winners from the losers. Despite the political significance of the grand-scale purchase, the Chinese have little cause to celebrate. According to reports by oil experts, PetroKazakhstan has already pumped out 66% of the oil reserves in the South Kumkol deposits, and the resources of the North Kumkol fields have been depleted by 35%. The Kumkol fields oil output is set to decrease next year (Central Asian Monitor, October 14).

But gaining access to oilfields in the Caspian and South Kazakhstan is evidently part of Chinese geopolitical calculations in the region. Astana and Moscow are alarmed at Beijing’s growing appetite. On October 21 President Nazarbayev held talks with the head of Lukoil, Vagit Alekperov. In press interviews Alekperov did not elaborate much on the content of the problems discussed and only unveiled Lukoil’s plans to remain in Kazakhstan. One thing journalists can say with a greater degree of certainty is that Alekperov did not congratulate the Kazakh leader on CNPC’s acquisition of PetroKazakhstan.